A Model of Corruption and Heterogeneous Productivity: A Theoretical Approach

Nhan Buu Phan () and Shino Takayama ()
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Nhan Buu Phan: School of Economics, University of Queensland, Brisbane, Australia
Shino Takayama: School of Economics, University of Queensland, Brisbane, Australia

No 660, Discussion Papers Series from University of Queensland, School of Economics

Abstract: We consider a model of corruption in which agents are heterogeneous in their productivity and examine the relationship between productivity and bribery behaviors. There are two types of technologies such that the good technology is costly but yields a positive externality to the economy, whereas the bad technology is costless but does not generate the positive externality. Because the government cannot perfectly monitor which technology is used, bureaucrats and entrepreneurs may engage in bribes to utilize the bad technology. In equilibrium, there are three regimes possible: (1) all entrepreneurs use good technology; (2) all entrepreneurs use bad technology; and (3) the relatively more productive entrepreneurs use bad technology. We show that the equilibrium is unique, while our dynamic analysis demonstrates that the equilibrium converges to the clean regime, where all entrepreneurs employ the good technology as the state capacity increases over time.

Keywords: Multidimensional inequality; Stochastic Dominance; Multidimensional; complaint incidence curve; Cumulative multidimensional complaint curve (search for similar items in EconPapers)
JEL-codes: D63 I31 (search for similar items in EconPapers)
Date: 2023-01
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Persistent link: https://EconPapers.repec.org/RePEc:qld:uq2004:660

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